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Lars Eefting

Korreweg 99b

9714 AE Groningen

S1912526

Supervisor: Prof. dr.ir P.M.G van Veen-Dirks

Second corrector: Dr. J.S.Gusc

University of Groningen

Faculty of Economics & Business

MSc: Business Administration

Organizational & Management Control

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PREFACE

This master thesis is the final product of my study business administration at the University of Groningen. At the moment I am finishing the last part of my master thesis which also means that my study period is coming to an end. My study period started seven years ago at the Hanze University of Applied Science in Groningen. In 2009 I started with the pre-master Organizational & Management Control (OMC) at the University of Groningen. When I finished the Field Course OMC in January 2011, I was allowed to start with my master thesis.

During the Field Course OMC I already found some interesting topics that could be used for my master thesis. Especially the article by Stubbs and Cocklin (2008), where they described their sustainable business model, provided me with some ideas. However, I decided to join the International Business Research Project (IBR) first. The IBR- project improved my commercial and communicative skills significantly and I came in touch with the energy sector. I investigated the investment possibilities in Mexico for a Dutch oil and gas company. During the interviews that I took with managers and professors in Mexico, several thoughts for my master thesis originated.

The internship at PriceWaterhouseCoopers (PWC) that I did after the IBR- project was also related to the energy sector and that provided me with ideas for my thesis as well. I decided to investigate the relationship between firm characteristics and their environmental performance and financial performance. Data about environmental performance has been provided by PwC and I am very grateful for that.

Therefore I would like to thank my supervisor at PwC, Ms. E. van der Vleuten for her support during my assignment at PwC and Mr. H. Schoolderman for providing the data.

In particular I would like to thank my supervisor at the University of Groningen, prof. dr. ir. P.M.G. van Veen- Dirks for all her support during the process of writing my master thesis. I am thankful for all the enthusiasm, critiques, good questions and ideas she gave me. It really helped me finishing my thesis. Finally I would like to thank my parents, brother and friends for the patience during my study and especially during the process of writing this master thesis.

Yours sincerely

Lars Eefting

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Management summary

While it took some decades to institutionalize environmental sustainability into the mindset of corporate managers, most of them see the importance of it now. An increased number of scholars and managers agree on the fact that environmental initiatives improve environmental- and financial performance. However, it remains unclear which organizational resources contribute to improved environmental performance. Regulations like the Kyoto Protocol are suboptimal and cause much ambiguity about the organizational resources in which managers should invest.

This master thesis takes the resource- based view as a starting point in order to investigate in which organizational resources firms should invest. A theoretical model has been developed in this master thesis in order to find potential relationships between organizational resources and environmental performance on one hand and between environmental performance and financial performance on the other hand. This master thesis attempts to provide an answer to the following research question:

Which organizational resources enhance environmental performance and does environmental performance influence financial performance?

The statistical analysis shows that two organizational resources are positively related to environmental performance. First, organizations that are actively engaged in networking activities perform better on environmental aspects like Co2 emission. Second, international experience, measured by the amount of foreign companies is which a company operates, lead to better environmental performance as well. The results show that organizational resources like an ISO 14001 certificate are positively related to Co2 emission, which means that an ISO 14001 certificate has a negative influence on environmental performance.

The statistical analysis did not find a significant relationship between environmental performance and financial performance when control variables like firm size, leverage and type of industry have been added. The statistical part does show that the control variables firm size and type of industry have a huge impact on environmental performance and financial performance.

The results of this master thesis can be used by both scholars and managers as a criterion against which to assess investment alternatives. Policymakers could use the results of this thesis in their future climate agreements. Stakeholders like environmentalists and customers can assess the results of this master thesis in their decision to do business with certain companies.

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Table of content:

PREFACE ...2 Management summary ...3 1 INTRODUCTION ...5 2 THEORETICAL PART ...7 2.1 Sustainability ...7 2.2 Sustainability practices ...8 3 THEORETICAL MODEL... 10 3.1 Introduction model ... 10

3.2 Organizational Resources and Environmental Performance ... 11

3.3 Environmental Performance and Financial Performance ... 17

4 METHODS ... 19 4.1 Organizational resources ... 19 4.2 Environmental performance ... 20 4.3 Financial performance... 22 4.4 Control variables ... 22 5 DATA ANALYSIS ... 23 5.1 Sample ... 23 5.2 Correlations ... 24 5.3 Regression analysis ... 26 5.4 Main results ... 30 6 CONCLUSIONS ... 31

6.1 Limitations and suggestions for further research ... 32

REFERENCES ... 33

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1

INTRODUCTION

In 2012 the first commitment period of the Kyoto Protocol, which was adopted in 1997, will come to an end. The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate (UNFCC). The Kyoto Protocol contains binding targets for industrialized countries and the European community to reduce greenhouse gas emissions in the atmosphere. Despite of these binding targets, the emission levels have increased. Firm activities such as greenhouse gas emission have compromised the environment and result in a global warming effect (Bansal, 2002; Gould & Scaletta, 2009). Continuation of the warming trend will result in melting glaciers and artic ice sheets, which will cause rising sea levels to inundate coastal areas. Global warming also changes weather patterns, increased risks of droughts and hurricanes and many health problems (Bausch & Mehling, 2006). According to the Carbon Disclosure Project emission levels reached a record high in 2010 and decisive actions should be taken if we want to prevent temperature to increase by 2°C at the end of the century.1 A number of factors such as governmental regulations, cost factors and competitive requirements are already pushing organizations to include environmental issues in their mission and decision making (Bansal, 2002). Even U.S. president Barack Obama promised to focus on sustainability issues such as promoting alternative energy, reducing greenhouse gas emissions and improving energy efficiency (Elkington, 1994; Stubbs & Cocklin, 2008)

However, as one of the largest polluters in the world, the United States of America, was not willing to sign the Kyoto Protocol because they thought that it was unfair compared to developing countries. The fact that the U.S. did not sign the Kyoto Protocol was one of its main shortcomings. This master thesis will use greenhouse gas emission levels of U.S. firms for the 2008-2010 period in order to see if emission levels changed, but more importantly, to see which firms are best able to reduce emission levels. Data about emission levels has been collected from the Carbon Disclosure Project (CDP). The Carbon Disclosure Project reports climate strategies, greenhouse gas emissions and energy use of the largest companies in the world. The CDP is a partnership of PwC, Accenture, Microsoft, SAP and Bloomberg. I came in touch with the CDP during my internship at PwC. The assignment that I did for PwC was related to the energy sector in the North of the Netherlands. Various interviews were taken in order to report the most important impediments for companies to start with sustainable initiatives. Both, the carbon disclosure project and the interviews provided ideas for this master thesis. The purpose of this thesis is to investigate which organizational resources enhance firm’s environmental performance. The study will also examine if firm’s environmental performance is related to their financial performance.

1

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Although there has been much research on the relationship between environmental performance and financial performance, the testing of the association between organizational resources and environmental performance is still in its infancy (Michalisin & Stinchfield, 2010). Besides that, the combination of the organizational resources used in this study and the application to the Standard & Poor’s 500 index (S&P 500) is hardly investigated yet. Therefore the following research question has been developed:

Which organizational resources enhance environmental performance and does environmental performance influence financial performance?

This thesis will use data from the S&P 500 companies that reported their environmental performance to the CDP. From the companies that reported their environmental performance, data about their organizational resources has been collected. Data about the organizational resources has been collected from annual reports provided by the U.S. Security and Exchange Commission (SEC). The database “ORBIS” has been used to gather information about financial performance of the S&P 500 companies. The S&P 500 is a market-value-weighted index (shares outstanding multiplied by stock price) of 500 stocks that are traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and the NASDAQ.

The contribution of this positivist research method (Blumberg et al. 2008) is threefold. First it is in the interest of stakeholders such as environmentalists and investors to know which organizations are best able to improve their environmental and/ or financial performance. Secondly, managers can use the results to examine if their firm possesses the appropriate resources in order to compete with competitors. Finally, the study may reveal to environmental policymakers on which organizational resources they should focus in future climate policies.

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2

THEORETICAL PART

2.1 Sustainability

Sustainability lacks a universally agreed definition and a variety of worldviews are presented in the literature. Most of the definitions of sustainability draw on the principles of the Brundtland Commission from 1987:

“Meeting the needs of present without compromising the ability of future generations to meet their own needs”

Since the Brundtland Commission Report was published, corporate managers and management scholars have been struggling with the questions of how and why corporations should incorporate environmental concerns into strategic decision making. Due to ambiguous definitions of sustainable development, sustainability is not yet institutionalized in the mindset of corporate managers. Managers are focused on shareholder value, market share and innovation. Organizational goals are tied to economic prosperity, not environmental integrity or social equity. Scholars argue that these three conditions: economic prosperity, social equity and environmental integrity are necessary for the development of sustainability. If one of the three conditions is not supported, economic development will not be sustainable (Berry & Rondinelli, 2000; Bansal, 2002, 2005).

Economic prosperity is about the survival of individuals and organizations and assumes a reasonable quality of life. Social equity relates to issues of poverty and income inequality and deals with the humanitarian context of business. Issues such as not to employ child labor, not to produce socially undesirable goods, and not to collaborate with unethical organizations belong to this category. Environmental integrity is about the impact of human activity on the quality and quantity of natural resources, the environment, global warming, ecological concerns, waste management, reduction in energy and resource use, alternative energy production, and improved pollution and emissions management (Bansal, 2005; Townsend, 2008; Haugh & Talwar, 2010).

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improve financial performance as the investment in emissions reduction may exceed the savings generated. Thus as organizations move closer to “zero emissions” reductions, it will become more capital intensive and may require broader changes in underlying product design and technology. Porter and Kramer (2006) concluded that environmental management practices work best for issues that coincide with an organization’s economic or regulatory interests. Typically the more closely tied an environmental sustainability issue is to an organization’s business, the greater the opportunity to leverage organizational resources and benefit the environment. Despite of these theoretical findings, empirical studies show that environmental management practices are often uncoordinated, disconnected from organizational strategy, isolated from operating units and even separated from corporate philanthropy (Haugh & Talwar, 2010, Hart,1995; Porter & Kramer, 2006; Hart & Ahuja, 1996). After a short introduction of sustainability, the next section will describe the different practices that organizations can undertake in order to be a sustainable organization.

2.2 Sustainability practices

Several researchers (Klassen & Whybark, 1999; Stubbs & Cocklin, 2008; Russo & Fouts, 1997) investigated which kind of environmental management practices can be distinguished within firms. Klassen and Mclaughlin (1996) define environmental management as:

“all efforts to minimize the negative environmental impact of the firm’s products throughout their life cycle”.

According to Stubbs and Cocklin (2008) organizations are moving from “greening” practices, where an organization focuses on instrumental or process objectives (such as pollution control), to “sustaining” practices, a focus on outcomes such as assuring ecosystem and socio-system health and integrity. These environmental management practices are often classified as pollution prevention and pollution control in the literature (Hart, 1995).

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Process adaptation refers to fundamental changes to the manufacturing process that reduce any negative impact on the environment during material acquisition, production or delivery (Klassen & Whybark, 1999).

Pollution control is less advanced and emissions and effluents are trapped, stored, treated and disposed of using pollution control equipment. Pollution control equipment treats or disposes of pollution of harmful by-products at the end of a manufacturing process, either immediately or later. Organizations must add operations or equipment to the end of an existing manufacturing process, thereby leaving the original product and process virtually unaltered. Besides that, pollution control equipment is non-productive and leads to more expensive operations (Hart, 1995; Hart & Ahuja, 1996; Klassen & Whybark, 1999). Pollution control technologies can be further characterized as either remediation or end-of-pipe controls. Remediation refers to cleaning up environmental damage caused by crises or past practices, and it is often driven by regulation or by improvement in scientific understanding of environmental damage. End- of- pipe controls refer to using equipment that is added as a final process step to capture pollutants and wastes prior to their discharge (Klassen & Whybark, 1999).

Next to pollution prevention and pollution control practices another environmental management practice can be distinguished; product stewardship. Whereas pollution control and pollution prevention practices mainly focus on new capability building in production and operations, product stewardship goes one step further by minimizing the impact on the environment in every step of the value chain from raw material access, through production processes, to disposition of used products (Berry & Rondinelli, 1998). Product stewardship requires internal coordination, but also the integration of the perspectives of key external stakeholders (environmentalists, community leaders, the media, regulators) into decisions on product design and development. A common characteristic of product stewardship is the use of some form of life cycle analysis (LCA). LCA is used to assess the environmental burden created by a product from “cradle to grave”. For a product to achieve low life cycle environmental costs, designers need to minimize the use of non-renewable materials, avoid the use of toxic materials and use living renewable resources in accordance with their rate of replenishment. The product must have a low environmental impact and should be easily composted, reused, or recycled at the end of its useful life (Hart, 1995; Berry & Rondinelli, 1998).

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On the other hand organizations that overestimate business opportunities and environmental threats may create unnecessary expenditures or constrain the company form otherwise profitable activities. If the business opportunities offered by increasing demands for environmental protection are overestimated a company may invest in projects that do not produce the required revenues (Vastag et al., 1996; Wagner, 2002).

In chapter 2 the topic of sustainability and several environmental management practices, that organizations can apply, have been discussed. The next chapter will describe the theoretical model that will be applied in the remaining part of this thesis.

3

THEORETICAL MODEL

3.1 Introduction model

Chapter 3 will describe the theoretical model of this master thesis. The theoretical model consists of organizational resources, environmental performance measures and financial performance measures. Chapter 3 will also describe the hypotheses that have been developed. The developed hypotheses provide an overview of the expectations concerning the relationships between organizational resources and environmental performance and between environmental performance and financial performance. But first a theoretical description of organizational resources will be given. The theoretical model, which includes the expected relationships, is depicted in figure 2.

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3.2 Organizational Resources and Environmental Performance

This section will develop resource- based explanations for firms’ environmental performance. The theory of the resource- based view takes the perspective that valuable costly- to- copy firm resources and capabilities provide the key sources of sustainable competitive advantage (Hart, 1995).

The resource- based view is internally focused and argues that effective organizational strategies build rent- earning resources and capabilities (Bansal,2005). Barney (1991) defines these resources as:

“all assets, capabilities, organizational processes, firm attributes, information and knowledge controlled by a firm that enable a firm to implement strategies that improve its efficiency and effectiveness”.

Organizational resources include tangible and intangible assets. Tangible assets are for example the firm’s financial reserves, physical plant and equipment, and its raw materials. Intangible assets are for example the firm’s reputation, culture, and intellectual capital. The intangible assets were found to be relatively less important by managers but they are becoming increasingly important. Because the speed of comparable tangible asset acquisition accelerates and the speed of imitation quickens, organizations that want to sustain a competitive advantage need to protect, exploit and enhance their unique intangible assets (Grant, 1991; Petrick et al., 1999).

In order to gain a sustainable competitive advantage organizational resources should be tacit, socially complex or rare. Tacit resources are skill based and people intensive. Such resources are “invisible” assets based upon learning-by- doing that are accumulated through experience and refined by practice. Socially complex resources depend upon large numbers of people or teams engaged in coordinated action such that few individuals, if any, have sufficient breadth of knowledge to grasp the overall phenomenon. Rare and/or specific resources are not widely distributed within an industry and/or must be closely identified with a given organization, making them difficult to transfer or trade (brand image, exclusive supply arrangement) (Hart, 1995; Sharma & Vredenburg, 1998; Bansal, 2005).

Organizational capabilities are the coordinating mechanisms that enable the most efficient and competitive use of organizational resources whether tangible or intangible (Sharma & Vredenburg, 1998). Organizational capabilities are the skills that firms develop to reproduce and manage organizational resources (Barney, 1991). This study identifies five resource- based variables that may influence environmental performance.

Organizational learning

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environmental sustainability. Kleiner (1991) argues that employees should be trained in order to be able to recognize opportunities for environmental improvement. Employee training is required, because managers do not see the detail that need improvement. Consequently managers should listen to the employee in order to facilitate organizational learning. Organizational learning defines the ways firms build, supplement and organize knowledge and routines around their activities and within their cultures (Dodgson, 1993; Argyris & Schön, 1996).

Teaching employees about environmental sustainability can be done with formal teaching methods or by personal experience. Although teaching employees about formal environmental practices can be helpful, it is action learning that gives employees the opportunity to participate in practical sustainability projects, which makes learning both interesting and worthwhile and also contributes to serious advances in economic development, poverty alleviation, and environmental sustainability (Siebenhüner & Arnold, 2007; Haugh & Talwar, 2010).

Russo and Fouts (1997) studied the role of learning in relation to environmental management practices and they concluded that organizations that strive for pollution control practices are less dependent on organizational learning than organizations that want to commit to pollution prevention practices. Organizational learning is important for organizations that strive for pollution prevention practices because they have to re-invent their products and processes, integrate new sets of data and revise their communication strategies (Dodgson, 1993; Russo & Fouts, 1997). Sharma and Vredenburg (1998) found that companies who were proactive in their environmental practices formally and informally discussed advances in knowledge on the business / natural environment interface and actions taken to reduce environmental impact in each managers’ operational domain. Changes in the business environment motivate exploration of alternative organizational routines, technologies, environments, and objectives, may result in higher- order learning (Argyris & Schön, 1978; Sharma & Vredenburg, 1998; Jansen et al., 2007). Not only performance below aspirations, as the literature discusses at length, will trigger higher-order learning (Cyert & March, 1963) but fundamental shifts in proactive environmental strategies can also create an experiential base of activities that results in higher-order learning within organizations. Higher- order learning not only leads to capability development within companies, but it is also a capability that leads to competitive benefits in terms of improved operations, increased efficiencies, cost reductions, higher productivity, as well as the triggering of a capability of continuous innovation. This study will examine if organizational learning contributes to environmental performance and therefore the following hypothesis has been developed:

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International experience

Organizations can develop international experience by operating in, and being dependent on, foreign markets. Organizations with international experience acquire knowledge from multiple governmental regulations, and develop capabilities in coordinating distant parts of the organization. Organizations with a high level of interdependence between different parts of the organization, generate even more international experience (Roth, 1995). Kogut (1989) argues that operating in different countries enhances the flexibility of the organization so that changes in “ competition or regulatory requirements” can be continually exploited.

Environmental management practices vary within and among foreign jurisdictions because of differences in local regulations, community preferences, and even technologies. Organizations with international experience can leverage knowledge acquired in different jurisdictions and develop a set of best environmental practices based on their collective learning. Organizations with international experience are often more adept than domestic firms at developing organizational structures and systems that allow coordination across different jurisdictions. For example, many multinational organizations will have one person responsible for all environmental management practices across all its international subsidiaries (Bansal, 2005; Christmann & Taylor, 2006).

Finally, organizations with international experience, recognize the value of achieving good environmental performance because it facilitates their license to operate in foreign countries (Roth, 1995; Russo & Fouts, 1997; Bansal & Roth, 2000; Bansal, 2005). So therefore, I developed the following hypothesis:

H2: There is a positive relation between international experience and environmental performance Organizational networks

Barney (1991) argues that networking can become a sustainable competitive advantage because it is difficult to replicate and lacks strategically equivalent substitutes. Michalisin and Stinchfield (2010) argue that organizations oriented towards environmental sustainability are driven by a strong sense of environmental purpose to work with other firms (even competitors), governments, environmentalists, academics, and others in solving our climate change problems. Organizational networks are defined as:

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Eisenhardt and Schoonhoven (1996) found that vulnerable strategic position and strong social position are important drivers of forming organizational networks. Organizational networks are often formed when firms are in vulnerable strategic positions either because they are competing in emergent or highly competitive industries or because they are undertaking expensive or risky strategies. In such situations, organizational networks can provide the necessary resources that improve the strategic position. Organizational networks can also be formed by organizations with strong social positions. Strong social positions lead to alliance formation because personal relationships create an awareness of opportunities for alliancing as well as knowledge and trust among potential partners. Personal relationships set the stage for alliance formation since “the key is who you know”. In addition strong social positions lead to alliance formation because high status and reputation signal the quality of the firm and attract partners who want to associate with high-status others (Eisenhardt & Schoonhoven, 1996).

Organizational networks give organizations the advantage of a large organization and the ability to grow (adding new organizations) while keeping the individual organizations small, flexible, responsive and innovative. Organizational networks can react quickly to changing market conditions, they are flexible in meeting customer demands and they are able to transform markets through the rapid development of new products and services (Griffiths & Petrick, 2001). Organizational networks are relevant to sustainability in two ways. First, an organizational network is being recognized as a major source of innovativeness in new product and service developments. Second, an organizational network is an appropriate structure for capturing and diffusing information relevant to sustainability through the network (Griffiths & Petrick, 2001). Therefore I developed the following hypothesis:

H3: There is a positive relation between networking activities of firms and their environmental performance

Organizational champion

The introduction already discussed that pollution prevention practices require new techniques and innovation. Innovation, however, is often attended with problems in organizations (Chakrabarti, 1974). The primary reasons for the lack of innovation in organizations are: (1) inertia in putting forth the idea, (2) fear of criticism if the idea is offered, (3) feeling of futility about the likelihood that the idea will be well received or acted on, (4) lack of attention paid to the idea at the early stage. According to Chakrabarti (1974), Petrick et al. (1999) and Stubbs and Cocklin (2008) these innovation problems can be prevented by giving, innovation and environmental efforts, attention of the top management.

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management support and the degree of success of adoption. Chakrabarti (1974) and Stubbs and Cocklin (2008) also argue that the presence of a product champion is an important factor for the success of innovation projects. It is important to have a key individual or “product champion” responsible for selling ideas to the management and getting management sufficiently interested in the project. Petrick et al. (1999) even argue that the champion should be part of the management team. An Organizational champion can be defined as:

“an individual who is intensely interested and involved with the overall objectives and goals of the project and who plays a dominant role in many of the research- engineering interactions through some of the stages, overcoming technical and organizational obstacles and pulling the effort through its final achievement by the sheer force of his will and energy”.

The diversity of environmental issues and the difficulties of promoting sound practices dictate that a remarkable talented individual should be chosen as a champion. In order to be successful in promoting environment sustainability, champions should have superior managerial skills and influence within the organization and the authority to allocate adequate resources to environmental management practices. Champions should also focus on improving quality in the production process instead of fixing quality at the end of the product line (Hart & Ahuja, 1996; Berry & Rondinelli, 1998).

Whereas most managers strive for rapid profit and modernization but degrade eco systems, biological populations and human communities, organizational champions promote economic, social and environmental development simultaneously (Petrick et al., 1999). Therefore the following hypothesis has been developed:

H4: Organizations with an organizational champion in the management board have higher environmental performance.

ISO 14001 certification

A good example of the growing interest in voluntary measures to address environmental performance is the increasing popularity of the international norm; ISO 14001 (Barla, 2005). The ISO 14001 standard consists of guidelines that prescribe how organization’s can design their environmental management systems (EMS). The standard serves as a framework to assist organizations in developing their own EMS. An EMS may be viewed as a set of management rules and procedures designed at reducing the environmental impacts of an organization (Barla, 2005).

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standards organizations (Barla, 2005; Boiral, 2007). The ISO 14001 standard was launched by the International Organization for Standardization (ISO) which is the world’s largest standard setting organization with a membership of national institutes from 157 countries (Aravind & Christmann, 2011). The ISO 14001 standard describes the components and characteristics of an effective system for managing an organization’s environmental impact and offers a flexible framework. So firms do not need to compromise social equity or economic prosperity (Rondinelli & Vastag, 2000; Bansal,2002). A brief overview of the steps for ISO 14001compliance is provided in figure 3.

FIGURE 3: The six steps for ISO 14001 Compliance

While some firms are just using the ISO 14001 guidelines to develop an EMS to the international standard without formally certifying them, an increasing number of organizations certify their EMS by a registered auditor. Since the 1990’s there has been a clear shift in the profile of organizations that certify their EMS. Typically the early adopters of the ISO 14001 standard were in the heavy industry and manufacturing sectors. However, as environmental issues have increased in importance, organizations in the service and support sectors have adopted EMS as well. The spectrum of ISO 14001 standard users has broadened to areas including zoo’s, farming, schools and universities, military services, media, ships and airlines (Peglau & Baxter, 2007).

Critics argue that the ISO 14001 certificate is just a search for external recognition and corporate image building and they argue that an ISO 14001 certificate does not necessarily mean that companies are sustainable. Companies may report their progress on environmental issues (Co2 emission, waste, recycling) but may not change their underlying business practices that cause environmental and social degradation (Boiral & Sala, 1998; Barla, 2005; Stubbs & Cocklin, 2008). Similarly, companies may not report environmental performance but may be making significant progress towards sustainability.

Advocates like Rondinelli and Vastag (2000) and Benito and Benito (2005) argue that the ISO 14001 standard is a clear international guideline which measures the progress of companies on environmental management and even discriminates good performers from others. The coherent ISO 14001 framework reduces the need for multiple registrations, permits and requirements under different national or local regulations. The international ISO 14001 standard makes it easier for stakeholders to

1. Develop an environmental policy

2. Identify the firm's environmental aspects and impacts 3. Identity legislative/regulatory requirements

4. Identity the firm's priorities and set objectives and targets for reducing environmental impacts

5. Adjust the organizational structure to meet those objectives, such as assigning responsibility, training, communicating, and documenting

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assess a company’s commitment to improving environmental performance. Rondinelli and Vastag (2000) claim that adoption of an ISO 14001 certified EMS helps companies reduce their environmental incidents and liabilities, increase efficiency of operations by removing waste from production and distribution processes, increase awareness of environmental impacts of operations among employees, and establish a strong image of corporate social responsibility. Finally another benefit of an ISO 14001 certified EMS are administrative aspects such as monitoring of non- conformities, updating of documentation and computerization of the EMS (Rondinelli & Vastag, 2000; Bansal & Hunter, 2003; Boiral, 2007; Delmas & Montiel, 2009; Aravind & Christmann, 2011). Therefore the following hypothesis has been developed:

H5: There is a positive relation between ISO 14001 certified organizations and environmental performance

3.3 Environmental Performance and Financial Performance

The relationship between environmental performance and financial performance has been studied since a few decades (Hart & Ahuja, 1996; Klassen & Mclaughlin, 1996; Wagner et al. 2002). However, due to some methodological issues no conclusive results have emerged so far. Early studies were based on relatively small samples, frequently lacked objective measures of environmental performance and used old data. Empirical studies often made no clear difference between different approaches towards improving environmental performance. Similarly, they often did not account for important initiating or moderating factors for the relationship between environmental and financial performance, such as firm size, processes operated, market structure of the industry, country location and the production technology used to operate processes. Although some of these shortcomings have been addressed in the more recent studies, it is still difficult to compare them. So it is necessary to give a clear definition of environmental performance. Klassen and Mclaughlin (1996) define environmental performance as:

“a measure of how successful a firm is in reducing and minimizing its impact on the environment, often relative to some industry average or peer group”.

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private benefit (Hart, 1995; Porter and van der Linde, 1995, Russo & Fouts, 1997). Reducing pollution may increase production efficiency, increase demand from environmentally sensitive consumers, discourage stakeholder activism and allow a firm to attract better workers (Reinhardt, 1999). This positive effect of environmental performance on financial performance is reflected in the revisionist view (Klassen & Mclaughlin, 1996; Wagner et al. 2002). Organizations who demonstrate efforts to minimize the negative environmental impact of their products and processes are able to expand their market due to increased demand from “green” customers. Organizations who address environmental issues early may set the standard and may be able to displace competitors that fail to promote environmental performance. Furthermore an improvement in environmental performance through pollution prevention offers the potential to cut emissions well below the levels required by law, reducing the firm’s compliance and liability costs (Klassen & Mclaughlin, 1996; Hassel et al., 2004; Molina- Azorin et al. 2009). Therefore I developed the following hypothesis:

H6: There is a positive relation between organization’s environmental performance and financial performance.

Several studies (Klassen & Mclaughlin, 1996; Russo & Fouts, 1997) argue that the relation between environmental performance and financial performance is moderated by the type of industry. Firms in industries that are historically viewed as environmentally dirty, are not directly rewarded for showing improved environmental performance because the financial markets treat them with skepticism. Firms in industries that are seen as environmentally clean are more likely to be rewarded for improved environmental performance. Thus the relation between environmental performance and financial performance may be stronger in clean industries. On the other hand, because environmental compliance costs are much larger for environmentally dirty industries, greater cost savings could accrue to the firm from pollution prevention. Thus the high level of environmental impact in dirty industries might lead to a stronger association between environmental performance and financial performance (Klassen & Mclaughlin, 1996).

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between emission reduction and profit margin or ROA. A second consideration in explaining the lagged relationship between emission reduction and ROE has to do with reputation and cost of capital. The environmental profile of a company has an influence on its reputation and market value. Poor environmental performance may thus affect the firm’s cost of capital and it takes some time before the market becomes aware of a companies’ environmental performance.

The relationship between environmental performance and financial performance is not without its methodological issues. Several studies (Brangdon & Marlin, 1972; Klassen & Whybark, 1999; Russo & Fouts, 1997) put forward the relevant question of causality in the relationship between environmental performance and financial performance. Due to methodological limitations of correlation tests, upon which most studies in this field are based, the validity of results can be questioned. There are three possible causality relations: The first causality relationship defends the idea that pollution control affects profits. Pollution control reduces a firm’s operating costs and increases its revenues more than compensating initial investments. The second causality relationship presents a contrary position in which profits affect pollution control. This causality relationship argues that firms with higher profits would be more capable, and thus more likely, to invest in better environmental performance. Finally the third causality relationship places both pollution control and profits as consequences of an omitted variable bias. According to this view, no direct causality would exist between environmental and financial performance in any direction.

In order to investigate if the organizational resources really influence environmental performance and if environmental performance influences financial performance, the next chapter will discuss the data that has been collected and the methods used to examine the hypothesis.

4

METHODS

4.1 Organizational resources

Data about the organizational resources has been collected from annual reports (10K- reports) provided by the U.S. Security and Exchange Commission (SEC). The EDGAR database form the SEC has been consulted in order to search for information about organizational resources. Data about organizational resources has been collected, by doing a content analysis, from the S&P 500 organizations that reported their environmental performance to the Carbon Disclosure Project. Data about organizational resources has also been checked by using company websites so that reliance on annual reports as the only source of disclosure has been avoided. According to Wilmshurst & Frost (1999) care should be taken when using annual reports as the sole source of information.

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measured by the number of foreign countries in which a company operates and by the proportion of sales made in foreign countries. Both measures were also used by Bansal (2005). Data about organizational networks has been collected by searching for the words “network” “partnership””alliance” or “joint venture”. If companies operated solitary they were coded 0 and if they cooperated they were coded 1. Organizations that educated their employees were coded 1 and otherwise if they did not educate their employees a 0. In order to examine the influence of champions on environmental performance, annual reports were scanned in order to see if organizations possessed a manager responsible for environmental affairs within the management board. A value of 1 was taken if organizations possess an environmental champion and a 0 otherwise. Finally I used annual reports to determine if organizations certified their EMS by the ISO 14001 standard. Organizations with and ISO 14001 certificate were coded 1 and otherwise a 0. Other certificates like the ISO 9000 series were not included.

4.2 Environmental performance

Environmental performance will be measured by two variables. Both variables were provided by the Carbon Disclosure Project. The first measure is an elaborative scoring model form the Carbon Disclosure Project. The second measure is the emission level of Co2 released within a year.

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Strategy

Companies scoring high in this area were most likely to demonstrate integration of their climate-related priorities into their overall business strategy. The companies frequently disclose targets aligned with those ambitions and emission reduction targets.

Governance

Companies scoring highly in this area were most likely to demonstrate the most structured and most defined climate change management mechanisms by frequently reporting formalized accountability, incentives and oversight from the board or executive level.

Stakeholder communications

Companies scoring highly in this area were most likely to recognize the importance of providing transparent and quality disclosures for their stakeholders by taking steps to verify data and report climate- related information in their external communications.

Achievements

In support of their commitment to reduce emissions, these companies disclose the highest number of actions taken to reduce their emissions, and most report success in achieving emissions reduction.2

The score provides an indication of the extent to which companies are addressing potential opportunities and risks presented by climate change. CDP scores have been collected from 2008 till 2010. It is important to keep in mind that the scores are not:

 a measure of how low carbon a company is

 an assessment of the extent to which a company’s actions have reduced carbon intensity relative to other companies in its sector

 an assessment of how material a company’s actions are relative to the business.

Figure 4 provides an overview of the scores that can be obtained. The best performers receive a score of 70 or higher and the worst performers receive a score lower than 15.

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FIGURE 4: The Carbon Disclosure Scoring system

The second measure of environmental performance is the amount of Co2 released by a company. These emission levels are also collected for the years 2008 till 2010. The emission level is measured in tons of Co2 released.

4.3 Financial performance

Data about financial performance has been collected from the database “ORBIS”. Financial performance has been collected from the S&P 500 companies that revealed their environmental performance to the CDP in the years 2008 till 2010. The variables used in this study are return on assets (ROA), profit margin and return on equity (ROE). ROA and profit margin are both measures of operating performance and commonly used in statistical research. The ROA gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA, the better, because the company is earning more money on less investment. The ROA divides net income by total assets. Profit margin is calculated by finding the net profit as a percentage of revenues. Return on equity is a measure of financial performance and reveals how much profit a company generates with the money shareholders have invested. ROE divides net income by shareholder funds.3

4.4 Control variables

A number of commonly used control variables are added to the analysis such as firm size, type of industry and leverage (King & Lennox, 2002). Firm size is measured by total assets and the number of employees. Total assets are the sum of current and long- term assets of a firm which should be equal to equity plus liabilities. The type of industry has been used as a control variable because it is assumed to

3

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have a moderating effect on the relation between environmental performance and financial performance (Klassen & Mclaughlin, 1996). The Global Industry Classification Standard (GICS) will be used to classify the companies in the S&P 500 index. The GICS structure consists of 10 sectors. This study, however, classifies the companies into 6 different sectors in order to limit the amount of dummy variables needed in the data analysis:

 10 Energy  15 Materials  20 Industrials  25 Consumer discretionary  30 Consumer staples  45 ICT

Leverage is measured by the current ratio. The current ratio is the shareholders’ funds divided by total assets. As a general rule, the higher the current ratio the more liquid a company is.4

5

DATA ANALYSIS

5.1 Sample

The previous chapter already showed that the data has been obtained from multiple data sources. The “CDP” database has been consulted for environmental performance, the “ORBIS” database for financial performance and the “SEC EDGAR” database for data about organizational resources. About 180 companies from the S&P 500 index reported their environmental performance to the CDP in the years 2008-2010. Financial institutions (banks, insurance companies) and companies in the textile industry were excluded from the sample. This resulted in 141 companies. Furthermore, three companies were removed from the sample because they depicted extreme outliers in their financial performance. Finally, companies that operated solely in the U.S. were excluded from the sample in order to obtain a normal distribution. The other variables were normally distributed. The final sample consists of 115 companies from the S&P 500 index.

Table 1 shows that there is much difference in Co2 releases between these 115 companies. The minimum amount of Co2 released in 2008 is about 13.000 ton. The maximum amount of Co2 emission in 2008 is 145.000.000 ton, released by American Electric Power. The average company in the sample has 72.000 employees and $29 billion in assets which is slightly more than the average of the complete S&P 500 index (48.000 employees, $25 billion). Other statistics that were included in the table are the standard deviation and the median. Furthermore table 1 provides information about international experience, leverage and firm size in 2008. The other statistics such as environmental and financial performance are depicted for the period 2008-2010.

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It is remarkable that in the concerning period the absolute level of Co2 emission is not declining while the CDP scores increase in this period. The financial performance measures; return on equity, return on assets and profit margin show similar trends in the 2008-2010 period. The ratio’s exhibit a low in 2009 which is probably the result of the credit crunch. The average company in the sample made 46 percent of total sales in foreign countries and is located in 31 countries including the U.S. While table 1 exhibits the total amount of Co2 released in the period 2008-2010 by S&P 500 companies, the remaining part of the data analysis will only use the logarithm of Co2 emission. Appendix A provides more information about the organizational resources and industry types.

TABLE 1 Descriptive Statisticsa

a: n=115

5.2 Correlations

The correlation matrix has been used to measure the strength of association between organizational resources and environmental performance and between environmental performance and financial performance. The correlation coefficient measures this strength of association. The correlation coefficient can take values between +1 (positive correlation) and -1 (negative correlation). If the correlation coefficient is close to zero there is no relationship

Variable Description Mean Median Std. Dev. Min Max

Co2 emission 2008 Log of total emissions 2008 1,53 1,33 0,74 0,41 3,45

Co2 emission 2009 Log of total emissions 2009 1,52 1,33 0,73 0,54 3,36

Co2 emission 2010 Log of total emissions 2010 1,51 1,29 0,75 0,39 3,41

Co2 emission 2008 Co2 emission (t) 5.958.886 913.000 16.850.000 13.689 145.000.000

Co2 emission 2009 Co2 emission (t) 5.516.569 933.778 16.020.000 16.046 143.000.000

Co2 emission 2010 Co2 emission (t) 5.810.827 1.002.526 16.620.000 15.547 147.000.000

CDP score 2008 Score S&P 500 2008 63 63 15 17 89

CDP score 2009 Score S&P 500 2009 68 68 14 28 94

CDP score 2010 Score S&P 500 2010 70 70 16 25 99

Firm size Total assets *$000 29.158.556 15.727.000 39.510.000 2.556.500 228.052.000

Firm size Operating revenues *$000 30.557.473 11.864.000 64.450.000 1.593.504 477.359.000

Firm size Number of employees 72.301 30.360 202.329 1.124 2.100.000

Leverage Shareholders’ funds over total assets 39,91 38,53 18,46 -7,85 82,11

ROE 2008 Return on equity 2008 18,81 17,80 21,80 -44,00 100,00

ROE 2009 Return on equity 2009 14,17 13,20 20,94 -81,00 99,50

ROE 2010 Return on equity 2010 18,79 18,30 16,83 -75,00 89,60

ROA 2008 Return on assets 2008 6,62 7,20 8,11 -34,00 27,30

ROA 2009 Return on assets 2009 5,33 4,90 6,72 -21,00 34,00

ROA 2010 Return on assets 2010 7,42 7,50 4,83 -12,00 21,80

Margin 2008 Profit margin 2008 10,84 10,63 16,61 -60,70 52,80

Margin 2009 Profit margin 2009 10,24 9,41 14,55 -56,40 55,80

Margin 2010 Profit margin 2010 14,84 13,68 11,30 -13,60 58,00

International experience Number of foreign countries 31 27 22 2 90

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Table 2 gives an overview of the correlations between organizational resources and environmental performance. For 2008, 2009 and 2010 correlation was tested between “Co2 emission” as a measure of environmental performance and “international locations”, “international sales”, “organizational networks”, “Organizational learning”, “ISO 14001 certification” and “organizational champion” as measures of organizational resources. International locations and international sales are measures of international experience. Table 2 shows that some variables are negatively correlated which means in this case that these organizational resources have a positive influence on environmental performance.

TABLE 2 Correlationsa Variable 1 2 3 4 5 6 7 8 9 10 11 12 1.Co2 emission 2008 2.Co2 emission 2009 ,992** 3.Co2 emission 2010 ,989** ,993** 4.CDP score 2008 ,093 ,077 ,076 5.CDP score 2009 ,099 ,099 ,109 ,689** 6.CDP score 2010 ,140 ,137 ,151 ,646** ,825** 7.International locations -,207* -,212* -,209* ,051 ,141 ,143 8.International sales -,066 -,075 -,081 ,054 ,031 -,012 ,152 9.Organizational network -,330** -,341** -,356** ,099 ,051 ,089 ,228* ,168 10.Organizational learning -,257** -,255** -,247** ,026 ,043 ,097 ,136 ,062 ,326** 11.ISO 14001 certificate ,080 ,065 ,063 ,188* ,160 ,152 ,101 ,210* ,068 ,008 12.Organizational champion ,184* ,192* ,194* -,026 -,015 -,038 ,080 ,140 ,067 ,178 ,103 *** p< 0,001 **p<0,01 *p<0,05 a: n=115

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If the CDP- score is used as a measure of environmental performance, a positive correlation can be found between the CDP- score in 2008 and an ISO 14001 certificate which means in this case that companies with an ISO 14001 certified EMS, receive a higher score from the Carbon Disclosure Project. This might be in line with earlier findings that ISO 14001 certificates are more for external recognition and not necessarily related to, or compatible with, objectives of internal efficiency and improved Co2 emission (Dimaggio & Powell, 1983; Boiral & Sala, 1998; Boiral, 2007).

TABLE 3 Correlationsa

Variable Co2 emission

2008 Co2 emission 2009 Co2 emission 2010 CDP score 2008 CDP score 2009 CDP score 2010 Return on equity 2008 ,013 ,008 ,035 ,136 ,100 ,175 Return on equity 2009 -,102 -,108 -,098 ,164 ,059 ,166 Return on equity 2010 -,074 -,078 -,065 ,030 ,009 ,070 Return on assets 2008 ,045 ,045 ,071 ,136 ,056 ,123 Return on assets 2009 -,149 -,158 -,145 ,174 ,042 ,142 Return on assets 2010 -,114 -,114 -,100 -,058 -,091 -,035 Profit margin 2008 ,114 ,121 ,140 ,070 ,102 ,126 Profit margin 2009 -,141 -,148 -,141 ,209* ,077 ,126 Profit margin 2010 ,145 ,141 ,144 -,073 -,091 -,097 ***p<0,001 ** p<0,01 * p<0,05 a. n=115

Table 3 provides an overview of the correlations between environmental performance and financial performance. It can be concluded that no significant correlations can be found between environmental performance measured by Co2 emission and financial performance. There is only a significant correlation between the CDP score in 2008 and profit margin in 2009. With 95 percent confidence it can be concluded that higher CDP scores in 2008 result in a higher profit margin in 2009. The results are in conflict with Hart and Ahuja’s (1996) finding that reduced emissions are correlated with future financial performance. The delayed effect of environmental performance on return on equity cannot be observed.

5.3 Regression analysis

Table 4 provides an overview of the executed regression analysis. The dependent variable in model 1 t/m 4 is the Co2 released in 2008. The independent variables in model 1 are the organizational resources. The first measure of international experience is the amount of foreign countries in which the company operates and the second measure of international experience is foreign sales over total sales.

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were added. Especially firm size has an influence on the regression model. Both measures of firm size are positively related to environmental performance which means in this case that they lead to an increase in Co2 emission. Model 3 improves the regression analysis enormously which can be seen by the adjusted R- square (ΔR2). The industry dummy variables that were added in model 3 improve the strength of the regression analysis. The industry sectors that were added to the model seem to have a huge impact on environmental performance. It is not surprising that industries like “Materials” and “Energy” are strongly related to Co2 emission. Model 4 adds a financial performance dummy variable. Return on equity 2008 has been divided into two groups (low versus high return on equity). The addition of this dummy variable, however has hardly any impact on de model and it has no significant influence on Co2 emission.

The models have been tested on multicollinearity. That is the undesirable situation when one independent variable is a linear function of other independent variables. The largest variable inflations factor (VIF) has a value of 1,543 which is well below the recommended cutoff point. The strength of the regression analysis is measured by the R-square (R2). In the fourth model, 63 percent of the variance in Co2 emission in 2008 can be explained by the independent variables. The regression model is significant with a 99,9 percent confidence level and an F-value of 11.14.

The relation between environmental performance and financial performance has also been tested with a regression analysis (table 5). Environmental performance does not seem to have a positive influence on financial performance. There is only a positive relation between the CDP score of 2008 and the return on equity in 2009. Model 1 and 2 show that organizational champions have a positive influence on financial performance measured by return on equity in 2008. This means that the presence of an organizational champion results in an improvement in financial performance. Model 3 shows that organizational learning has a negative influence on return on equity in 2009. Thus organizational learning seems to decrease financial performance. Probably because of the time and money that should be devoted to organizational learning.

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TABLE 4 Regression Resultsa,b,

Model:

Dependent variable: pr.sign

Model 1 Co2 emission 2008 Model 2 Co2 emission 2008 Model 3 Co2 emission 2008 Model 4 Co2 emission 2008 Constant 2,118*** (0,190) 2,195*** (0,211) 1,546*** (0,214) 1,584*** (0,214) Organizational resources International locations (-) -0,005 (0,003) -0,007* (0,003) -0,006* (0,002) -0,006** (0,002) International sales (-) -0,156 (0,310) -0,315 (0,325) -0,181 (0,291) -0,078 (0,296) Organizational network (-) -0,443** (0,166) -0,398* (0,161) -0,290* (,123) -0,285* (0,122) Organizational learning (-) -0,293* (0,136) -0,229 (0,132) -0,056 (0,102) -0,061 (0,102) ISO 14001 certificate (-) ,144 (0,129) 0,207 (0,127) 0,250* (0,103) 0,254* (0,102) Organizational champion (-) Controls Number of employees 2008 0,549*** (0,197) 0,423* (0,194) -8,501E-7* (0,000) 0,162 (0,153) -5,045E-7 (0,000) 0,157 (0,151) -5,094E-7 (0,000)

Total assets 2008 5,590E-9**

(0,000) 4,342E-9** (0,000) 4,272E-9** (0,000) Leverage -,003 (0,004) -,003 (0,003) -,004 (,003) Industry dummy Materials 0,722*** (0,122) 0,752*** (0,122) Consumer staples 0,450** (0,167) 0,495** (0,167) Energy 1,452*** (0,203) 1,480*** (0,202) Consumer discretionary 0,009 (0,212) 0,028 (0,210) ICT ROE 2008 dummy R2 ΔR2 N F-statistic 0,22 0,18 115 5,03*** 0,30 0,23 115 4,87*** -0,139 (0,232) 0,62 0,56 115 11,55*** -0,090 (0,232) -0,183 (0,112) 0,63 0,57 115 11,14*** a. Standard errors are in parentheses.

b. Significance levels are based on two tailed tests.

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TABLE 5 Regression resultsa,b,

Model:

Dependent variable: pr.sign

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 ROE 2008 ROE 2008 ROE 2009 ROE 2009 ROE 2010 ROE 2010

Constant 7,029 (11,453) -2,804 (12,996) 7,531 (10,708) 4,702 (12,014) 13,856 (9,028) 6,930 (9,943) Co2 emission 2008 (-) -1,088 (3,131) -2,189 (4,201) -3,785 (2,927) -7,175 (3,884) -0,794 (2,468) -2,148 (3,214) CDP score 2008 (+) Controls 0,249 (0,140) 0,243 (0,142) 0,283* (0,131) 0,236 (0,131) 0,027 (0,110) -,006 (0,109) International locations 0,083 (,099) 0,076 (0,105) 0,055 (0,093) 0,000 (0,097) -0,009 (0,078) -0,041 (0,080) International sales -2,055 (10,012) 9,254 (11,900) -7,823 (9,361) 1,553 (11,000) 3,901 (7,892) 15,448 (9,104) Organizational network 0,438 (5,543) -0,698 (5,571) 6,643 (5,182) 4,510 (5,150) 7,415 (4,369) 5,699 (4,262) Organizational learning -4,648 (4,462) -5,426 (4,461) -10,624* (4,171) -10,359* (4,124) -3,638 (3,517) -4,000 (3,413) ISO 14001 certificate -6,452 (4,242) -2,525 (4,554) -6,591 (3,966) -3,138 (4,210) -1,433 (3,344) 1,976 (3,484) Organizational champion Industry dummy Materials Consumer Staples Energy Consumer Discretionary ICT R2 ΔR2 N F-statistic 13,220* (6,609) 0,08 0,01 115 1,16 15,812* (6,732) 3,479 (6,231) 17,031* (7,545) 9,576 (10,840) 8,525 (8,899) 18,800 (10,153) 0,14 0,03 115 1,28 3,567 (6,179) 0,08 0,01 115 2,00 3,706 (6,224) 11,993* (5,760) 19,843** (6,975) 8,050 (10,021) 8,080 (8,226) 7,414 (9,385) 0,14 0,03 115 2,00* -1,213 (5,210) 0,04 -0,03 115 0,58 0,569 (5,151) 6,096 (4,768) 20,551** (5,773) 4,915 (8,294) 7,992 (6,808) 11,326 (7,768) 0,16 0,05 115 1,45 a. Standard errors are in parentheses

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5.4 Main results

The main results are based on model 4 in table 4, because this model includes control variables and dummies. It can be concluded that some organizational resources have a positive influence on environmental performance. International locations (p<0,01) and organizational networks (p<0,05) are positively related to environmental performance measured by Co2 emission in 2008.

There is also an organizational resource that has a negative influence on environmental performance. ISO 14001 certification (p<0,05) has a negative influence on environmental performance measured Co2 emission in 2008. This seems to strengthen the idea that ISO 14001 certificates are just image building and do not improve environmental performance.

The regression analysis shows that firm size has a huge impact on environmental performance. Larger firms measured by total assets increase Co2 emission (p<0,01). The industry dummies influence the dependent variables a lot as well and improve the strength of the models. As could be expected, the type of industry has much influence on environmental performance and financial performance. “Materials” (p<0,001) and “Energy” (p<0,001) have a huge impact on the amount of Co2 released.

It can be concluded that hypothesis 1 should be rejected. Only model 1 in table 4 shows that organizational learning improves environmental performance. When control variables and dummies have been added no significant relationship can be found between organizational learning and environmental performance.

Hypothesis 2 can be confirmed because model 4 in table 4 shows that more international experience lead to a reduction in Co2 emission. With 99 percent confidence it can be said that more international experience, measured by the amount of foreign countries in which a company operates, lead to better environmental performance.

Probably the most convincing result of this study is that organizational networks lead to improved environmental performance. The correlation matrix as well as the regression analysis show that organizational networks have a positive influence on environmental performance. Thus hypothesis 3 can be accepted.

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Finally hypothesis 6 should be rejected, because no relation can be found between environmental performance and financial performance when industry dummies have been added. There is however a positive relation between de CDP score of 2008 and ROE in 2009 (p<0,05) indicating that companies with a higher score in 2008 have a higher return on equity in 2009. It should be noted that the models in table 5 have a low R2 - value which means that the models are not so strong.

Although not necessarily related to any hypothesis, table 5 shows that organizational learning deteriorates financial performance (p<0,05). This may be in line with the observations of Hart and Ahuja (1996) who argue that training requires some up front investments and that it may take some time before the financial benefits can be realized. Organizational champions, however seem to have a positive influence on financial performance measured by return on equity in 2008 (p<0,05).

6

CONCLUSIONS

This thesis applied the resource- based view of the firm as a theoretical starting point in explaining firm’s environmental strategies. The first purpose of this study was to test which organizational resources have a positive influence on environmental performance. The second purpose of this study was to test if environmental performance has a positive influence on financial performance. Whereas most studies deal with these questions separately, this study combines both questions in one theoretical model which has been developed in chapter 3.

Many interest groups like investors, environmentalists, policy makers and managers can use the results of this study in their decisions to do “business” with certain companies. These stakeholders should focus on the environmental management practices that organizations undertake. Do firms engage in pollution prevention practices or in pollution control practices? It may make a huge difference (Hart, 1995; Klassen & Whybark, 1999). Pollution prevention techniques cut emission levels below the levels required by law which reduces firm’s compliance and liability costs. These firm’s are continuously improving their environmental management practices which should attract stakeholders’ attention. Pollution control techniques add non- productive operations to their existing manufacturing process which leads to more expensive operations. Finally interest groups should be aware that environmental management practices should be closely related to the company’s existing business and connected to the corporate strategy in order to be sustainable (Porter & Kramer, 2006). The research question, however, remains:

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